ICAP Europe Limited fined £14 million for significant failings in relation to LIBOR

Published: 25/09/2013 Last Modified: 04/11/2014

The Financial Conduct Authority (FCA) has fined ICAP Europe Limited (IEL) £14 million for misconduct relating to the London Interbank Offered Rate (LIBOR). IEL is the first broking firm to be fined for failings relating to the benchmark.

IEL's misconduct breached the FCA's Principles for Businesses, involved a significant number of brokers (including two managers) and occurred over a number of years. Between October 2006 and November 2010, the misconduct included:

IEL brokers colluding with traders at UBS to manipulate the (Japanese Yen) JPY LIBOR rates for the benefit of the traders. This involved brokers deliberately disseminating incorrect or misleading LIBOR submission levels by:

emailing skewed suggestions to some Panel Banks as to where they believed the published JPY LIBOR rate would set for a particular day (known as "run-throughs"); and

A broker receiving corrupt bonus payments (at the instigation of one manager) as a reward for his assistance in manipulating the JPY LIBOR rates.

The FCA has taken action in this case in support of its objectives to ensure relevant markets function well and to promote and enhance the integrity of the UK's financial system.

Tracey McDermott, director of enforcement and financial crime, said:

"The misconduct in relation to LIBOR has cast a shadow over the financial services industry. The findings we publish today illustrate, once again, individuals within the industry acting with a cavalier disregard both for regulatory obligations and the interests of the markets. IEL's significant failings in culture and controls allowed that misconduct to flourish and fell far short of our expectations.

"Restoring trust in the industry starts with rooting out and recognising bad practice. True change will however only be achieved when all in the financial services industry accept and deliver on their responsibility to ensure that markets operate with integrity. This is our fourth penalty in relation to LIBOR and our investigations continue. The lessons however go far wider than LIBOR and we will take a very dim view of those who do not learn them."

The misconduct was widespread. UBS, which was fined in December 2012 for failings connected to LIBOR, made at least 330 written requests to IEL brokers for inappropriate submissions. UBS also made oral requests, which by their nature are not documented and so cannot be counted precisely.

Three brokers (including one manager) were central to the collusion, although at least seven other individuals (including another manager) spanning three desks also participated.

IEL's risk management systems and controls were inadequate to monitor and oversee the relevant broking activity. There was no effective oversight of the brokers involved, which meant that they were able to conceal their misconduct. From October 2006 to November 2010, IEL did not audit the desk at the centre of the misconduct (the JPY Derivatives Desk).

While IEL had certain policies and procedures in place to govern individual broker behaviour, they were insufficient to deal with collusion between brokers and their clients. Managers were responsible for monitoring day-to-day misconduct, but this proved ineffective as they failed to report misconduct or were complicit in it.

The brokers' misconduct was exacerbated by a poor compliance culture within IEL which was a result of its heavy focus on revenue at the expense of regulatory requirements.

IEL's inadequate systems, controls, supervision and monitoring meant that the brokers' misconduct went undetected and continued for several years.

IEL agreed to settle at an early stage of the investigation and therefore qualified for a 30% discount under the FCA's settlement discount scheme. Without the discount, the fine would have been £20 million.

This was a significant cross-border investigation and, in particular, the FCA would like to thank the US Commodity Futures Trading Commission (CFTC) for their cooperation. IEL also agreed to settle an action brought by the CFTC, who imposed a financial penalty of $65 million.

* On 1 April 2013, the Financial Services Authority (FSA) became the Financial Conduct Authority (FCA). References in this press release to the FCA should be read as to include reference to the FSA prior to 1 April 2013.

Notes for editors

IEL is a member of the ICAP Group - the world's largest inter-dealer broker. IEL offers broking services for a wide range of financial products, including interest rates, foreign exchange, money market instruments and derivatives. Given this role, IEL's brokers have particular market insight into cash trading prices and expected LIBOR rates and are able to provide their clients (including Panel Banks) with suggestions as to where they believe LIBOR will set on particular dates.

On 27 June 2012, the FSA (the FCA's predecessor) fined Barclays Bank plc £59.5 million for misconduct relating to LIBOR and EURIBOR. On 19 December 2012, the FSA fined UBS AG £160 million for significant failings in relation to LIBOR and EURIBOR, and 6 February 2013, the FSA fined The Royal Bank of Scotland plc £87.5 million for misconduct relating to LIBOR.

On 2 July 2012, the Chancellor of the Exchequer commissioned Martin Wheatley, chief executive of the FCA (formerly managing director of the FSA), to undertake a review of the structure and governance of LIBOR and the corresponding criminal sanctions regime. On 28 September 2012, the Wheatley Review published its final report The Wheatley Review of LIBOR which included a 10-point plan for comprehensive reform of LIBOR. On October 2012, the Government accepted the Review's recommendations in full, and enacted the Financial Services Act 2012. This Act, which amended the Financial Services and Markets Act 2000 came into force on 1 April 2013. On 25 March 2013, the FSA published its Policy Statement (PS13/6) setting out the new rules and regulations for financial benchmarks, following on from the recommendations of the Wheatley Review and the new provisions of the Financial Services Act 2012. These rules came into force on 2 April 2013.

The LIBOR benchmark reference rate indicates the interest rate that banks charge when lending to each other. It is fundamental to the operation of both UK and international financial markets, including markets in interest rate derivatives contracts.

LIBOR is used to determine payments made under both over the counter (OTC) interest rate derivatives contracts and exchange traded interest rate contracts by a wide range of counterparties including small businesses, large financial institutions and public authorities. Benchmark reference rates such as LIBOR also affect payments made under a wide range of other contracts including loans and mortgages. The integrity of benchmark reference rates such as LIBOR is therefore of fundamental importance to both UK and international financial markets.

LIBOR is published on behalf of the British Bankers' Association (BBA). There are different panels of banks that contribute submissions for each currency in which LIBOR is published. Throughout the Relevant Period between 7 and 16 banks contributed to the different LIBOR currency panels. Every LIBOR rate was calculated using a trimmed arithmetic mean. Submissions for each currency and maturity made by the banks were ranked in numerical order and the highest 25% and lowest 25% were excluded. The remaining contributions were then arithmetically averaged to create the final published LIBOR rate.

On the 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).

The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.